Canada dollar flat despite healthy commodities

Thu Jan 3, 2008 9:26am EST
 
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 By Frank Pingue
 TORONTO, Jan 3 (Reuters) - The Canadian dollar was little
changed versus the greenback on Thursday morning as support
offered by lofty commodity prices was offset by nagging
concerns about the U.S. economy.
 Bond prices were slightly lower but dealers were avoiding
huge moves until the first Canadian economic data reports of
2008 arrive on Friday, along with key U.S. payrolls data.
 At 9:10 a.m. (1410 GMT), the Canadian dollar was at
US$1.0075, valuing a U.S. dollar at 99.25 Canadian cents, up
from US$1.0072, or 99.28 Canadian cents, at Wednesday's close.
 A favorable commodity backdrop, with oil sticking near the
$100 a barrel level it reached on Wednesday and gold sitting at
a record high, would normally light a fire under the currency.
 Canada is a major producer and exporter of both oil and
gold, and the performance of its currency often mirrors the
direction of prices for the two commodities.
 But enthusiasm for the currency has been tempered severely
by concerns that the U.S. economy could be headed for a
downturn, which would have negative implications for Canada.
 "The Canadian dollar is dealing with the twin forces of
very strong commodity prices on one side but mounting concerns
about the U.S. outlook on the other side," said Doug Porter,
deputy chief economist at BMO Capital Markets. "So far those
forces are basically battling to a draw."
 Some recent U.S. economic data reports have supported the
notion that the U.S. Federal Reserve will cut interest rates
later this month.
 Porter suggested foreign exchange market participants were
avoiding huge bets until catching a glimpse of a key U.S.
December payrolls report due on Friday.
 Any moves by the Canadian dollar this week could be
exaggerated given relatively thinly staffed trading desks
during a holiday-shortened week.
 Bank of Canada Governor David Dodge, speaking during a
television interview aired on Wednesday, said the Canadian
currency's rise has been largely warranted by improved terms of
trade over the past several years.
 The Canadian dollar is coming off a banner year in which it
recorded a gain of about 17.5 percent and marched above parity
with the U.S. dollar for the first time in 31 years.
 BONDS TURN LOWER
 Canadian bond prices fell into negative territory across
the curve as the lack of any domestic data forced dealers to
look for direction south of the border, where two reports
pointed to a soft but growing labor market.
 The Canadian economic calendar is empty until the release
of the industrial product price and raw materials price indexes
for November on Friday.
 The overnight Canadian Libor rate LIBOR01 was at 4.2016
percent, down from 4.2166 percent on Wednesday.
 Thursday's CORRA rate CORRA= was at 4.2211 percent, down
from 4.2344 percent on Wednesday. The Bank of Canada publishes
the previous day's rate at around 9 a.m. (1400 GMT) daily.
 The two-year bond was down 2 Canadian cents at C$101.14 to
yield 3.621 percent. The 10-year bond dropped 15 Canadian cents
to C$100.55 to yield 3.929 percent.
 The yield spread between the two-year and 10-year bond was
30.6 basis points, up from 28.7 basis points at the previous
close.
 The 30-year bond slipped 39 Canadian cents to C$116.03 to
yield 4.061 percent. In the United States, the 30-year treasury
yielded 4.386 percent.
 The three-month when-issued T-bill yielded 3.88 percent, up
from 3.82 at the previous close.